Strong Opinions, Weakly Held

On Sundays, I like to post some form of general trading/investing advice. It makes for a nice respite from the week's event-driven mayhem. Yesterday, however, I did not get around to it.

To make up for that, we wax philosophical this morning on a fascinating topic -- and find that perhaps all those PHI courses in college -- after 3 years of Physics and Appl. Math -- weren't a waste after all.

I happened across an interesting phrase recently that perfectly summed up a philosophical mindset quite suitable for investors: Strong Opinions, Weakly Held.

Ahem -- where was I? Oh, yes, strong opinions, weakly held. That turn of a phrase really got my attention. The author was seeking to distinguish between what was "smart" and what was "wisdom." It perfectly sums up a crucial mental aspect required for the markets.

Being a successful investor often requires you to hold numerous internally conflicting concepts simultaneously -- something many the average psyche has difficulty with. One must think through the best possible analysis for your positions, and expend time and effort to thoroughly test them. You need to be able to strongly argue your postion -- bullish, bearish or cash -- but at the same time, be ready to admit error and change views.

Interestingly, the idea of strong opinions, weakly held was drawn from a different field than investing. The idea comes from Bob Johansen at the Palo Alto Institute for the Future. This independent, nonprofit research group focuses on helping companies make "better, more informed decisions about the future." That certainly sounds like something investors could profit from.

Consider the following:

"Johansen explained that – to deal with an uncertain future and still move forward – they advise people to have “strong opinions, which are weakly held.” They've been giving this advice for years, and I understand that it was first developed by Instituite Director Paul Saffo. Bob explained that weak opinions are problematic because people aren’t inspired to develop the best arguments possible for them, or to put forth the energy required to test them. It was just as important, however, to not be too attached to what you believe because, otherwise, it undermines your ability to “see” and “hear” evidence that clashes with your opinions. This is what psychologists sometimes call the problem of “confirmation bias.” (emphasis added)

This is dead on accurate for traders, and we've discussed related concepts in Investor, Know Thyself. Its why so often Psychology trumps Economics. My favorite related book is Thomas Gilovich's How We Know What Isn't So -- and for a psychology book, its surprisingly applicable to investors.

When I think about the phrase strong opinions, weakly held, a number of market aphorisms come to mind:

-You cannot "fight the tape," but sometimes you need to "fade the trade."

-Its often said that the Trend is your friend, except for that darn bend at the end.

- I was drawn to a more technical approach due to its agnosticism of positions: Buy at support -- unless it breaks, then short.

-No matter what your overall approach, one often hears the advice that
"no one is smarter than the market." Yet any contrary strategy is just
that -- an attempt to outsmart the crowd.

» Don't Follow Wealthy Investors, Part 14 from The Big Picture
We have counseled readers time and again not to follow in the footsteps of various Billionaires, like Warren Buffett, Michale Dell, Wilbur Ross, or Bill Gates. The ultra wealthy have different motivations and goals when they are deploying capital -- wh... [Read More]

Tracked on Feb 17, 2008 7:43:52 AM

Comments

It is astounding to hear management, barring operations, and science mentioned in the same sentence. Management is informed foremost by luck. The pot of gold comes when luck and art exploit a propitious moment. Having been forced to sit through management courses at one of the preeminent business schools, I can confirm the uselessness of management curriculum. Perhaps that is why so many of the thought leaders are undertaking a period of introspection meant to reorganize business curriculum.

On “strong opinions, loosely held”, I think one could just have easily said “no difference between being early and being wrong." Flexibility is key.

Disclaimer

Disclaimer

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